The Reserve Bank of India today released the July 2020 issue of its monthly Bulletin. The Bulletin includes three Articles and Current Statistics.

The three articles are: I. Financial Stocks and Flows of the Indian Economy: 2016-17 to 2018-19; II. Liquidity Management in the Time of Covid-19: An Outcomes Report; and III. Compilation of House Price Index Using Big Data Techniques.

I. Financial Stocks and Flows of the Indian Economy: 2016-17 to 2018-19

The financial stocks and flows (FSF) account for the Indian economy presents sectoral outstanding positions and transactions through financial instruments on a ‘from-whom-to-whom’ (FWTW) basis. It provides insights into sources and destinations of financial funds and movements of sectoral financial balances. The overall financial resource balance of the economy, though in marginal surplus, deteriorated during 2018-19 and with the protracted economic slowdown during 2019-20, the resource balance of the overall economy is expected to worsen further.

Along with the article, FSF data on FWTW basis is being released for the period 2011-12 to 2018-19. The article also provides preliminary estimates of sectoral resource gap and financial net worth position for 2019-20 based on leading indicators available for the respective sectors.

Highlights:

• The overall financial resource balance of the economy moderated during 2018-19 primarily due to increase in net borrowing of non-financial corporations and moderation in household savings.

• As per the preliminary estimates, the marginal surplus in the overall financial resource balance turned into a deficit in 2019-20 on account of the widening resource deficits of general government and public non-financial corporations.

• The balance sheet of depository corporations continued to remain in contraction mode during 2018-19, reflecting shift in the preferences away from deposits towards other competing financial instruments such as mutual funds and insurance.

• Liabilities of general government remained at an elevated level during 2018-19 and its financial net worth remained in negative territory.

• India remained a net borrower from the rest of the world.

• Loans and borrowing are the most used financial instruments to incur liabilities with a share of 29.0 per cent in total financial transactions, followed by debt securities and deposits with a share of 20.9 and 18.0 per cent, respectively.

II. Liquidity Management in the Time of Covid-19: An Outcomes Report

COVID-19 sent financial markets in India as also the world into a tailspin. Financial institutions were faced with liquidity stress, loss of access to funding and tightening of financial conditions amidst disruption of cash flows and working capital cycles. The Reserve Bank deployed several conventional and unconventional tools to restore orderly conditions in financial markets and maintain normal functioning of financial intermediaries. As a result, markets have remained resilient, liquid and stable, establishing conditions for a finance-led recovery of the economy ahead of the revival of demand.

Highlights:

• The abundant surplus liquidity in the system has ensured that the short-term rates have remained anchored and soft relative to the policy repo rate, aiding monetary policy transmission with positive spillovers to other segments of the market spectrum.

• Despite the increase in government borrowings and the significant loss of revenue due to the lockdown, the Government securities (G-secs) market has remained resilient and stable owing to targeted interventions by the Reserve Bank comprising Long term Repo Operations (LTROs), outright Open Market Operations (OMO) purchases and Operation Twists. A combination of aggressive policy easing, and the liquidity measures have caused yields on G-Secs to drop to their lowest level in more than a decade. However, long-term rates have not fallen commensurately with short-term rates, steepening the G-Sec yield curve.

• Targeted liquidity provision through LTROs and Targeted Long Term Repo Operations (TLTROs) has brought down financing costs in the corporate bond market to decadal lows, eased the access of non-AAA rated entities, and led to record primary issuances. These measures have also rekindled the risk appetite, as evinced in the compression of spreads of corporate bond yields over similar tenor G-Secs from the elevated levels witnessed in the last week of March 2020

• Additionally, TLTROs, complemented and backstopped by the special refinance facilities provided to All India Finance Institutions (AIFIs), have helped channelise liquidity to small and mid-sized corporates, including Non-Banking Financial Companies (NBFCs) and micro finance institutions (MFIs).

III. Compilation of House Price Index Using Big Data Techniques

The residential property price is an important piece of information for policymakers as variations in it influence both households and the banking and financial sectors. This study attempts to compile a timely alternative residential house price index employing big data and machine learning tools, based on data available on the web portals of real estate advertisement agencies. The study empirically examines the usefulness of this alternate house price index and compares it with Reserve Bank’s House Price Index (HPI).

Highlights:

• The big data tools have been employed to collect data from real estate advertisement websites in India using a specific kind of web scraping technique called ‘dynamic chart scraping’.

• Processing of the web crawled data has been carried out using machine learning techniques.

• There is a statistically significant correlation between the Reserve Bank’s HPI and proposed web-based HPI.

• The proposed HPI - which can be compiled almost immediately at the end of each quarter - is found to be useful in estimating the Reserve Bank’s HPI, that is published with a lag of three months.

(Yogesh Dayal)     
Chief General Manager

Press Release: 2020-2021/48